Points for Financial Analysis:

The Bank has continued to deliver on all key parameters with robust growth such as loan
book increment of 53.9%, improved asset quality, improved net income, increase in net
interest margins and improved liability franchise with a CASA ratio of 36.5%. This helped the
Bank generate strong shareholder returns with basic and diluted EPS increasing to `18.43
and `18.06 respectively, taking the book value up to `111.8.

During FY 2017-18, the Bank recorded a growth of 53.9% in its loan book with advances
increasing to `2,035,338.63 million, primarily due to increase in term loan of the Bank by
59.6%. Corporate Banking accounted for 67.9% of the Advances portfolio, while Retail &
Business Banking (incl. MSME) constituted 32.1%.

Net profit for FY 2017-18 increased by 26.9% to `42,245.64 million as compared to

`33,300.96 million for the FY 2016-17. Net Interest income (NII) of the Bank increased by
33.5% to `77,370.59 million during FY 2017-18 as compared to `57,973.07 million during FY
2016-17.

Non-Interest Income consists of fee, trade income and treasury income. Non-Interest
Income increased by 25.7% from `41,567.57 million in FY 2016-17 to `52,238.34 million in
FY 2017-18.

Operating expenses increased by 26.6% from `41,165.41 million in FY 2016-17 to

`52,127.80 million in FY 2017-18. Key drivers of operating expense growth were growing
branch network of the bank and scaling up of retail asset and credit card business of the
bank.

Non-interest expenses primarily include employee expenses, depreciation on assets and

other administrative expenses. Non-interest expenses increased by 26.6% from `41,165.41
million in FY 2016-17 to `52,127.80 million in FY 2017-18.

Employee costs increased by 21.3% from `18,050.43 million in FY 2016-17 to `21,889.20

million in FY 2017-18. Employee costs accounted for 42.0% of our operating expenses for
the FY 2017-18

Rent, taxes and lighting (other operating expenses) also increased by 19.83% to `4,543.76
million in FY 2017-18 on account of the branch expansion to 1,100 as on March 31, 2018
from 1,000 as on March 31, 2017.

The Bank also scaled up investments in information technology, retail asset and credit card
business which contributed to increase in operating expenses.

Despite increasing investments in information technology and branches, the Bank

maintained a satisfactory cost to income ratio of 40.2% for the FY 2017-18.

Cash and cash equivalents include cash in hand and balances with RBI and other banks,
including money at call and short notice. Cash and cash equivalents increased from
`195,494.44 million at March 31, 2017 to `247,343.66 million at March 31, 2018 primarily due
to an increase in Cash and Balances with RBI.

Total investments increased by 36.7% from `500,317.98 million at March 31, 2017 to
`683,989.39 million at March 31, 2018 primarily due to an increase in SLR securities by
`134,056.16 million from `354,804.67 at March 31, 2017 to `488,860.83 at March 31, 2018.
Equity Share Capital

On September 8, 2017, the shareholders of the Bank approved the sub-division of each equity
share having a face value of `10 into five equity shares having a face value of `2 each through
postal ballot. The record date for the sub-division was September 22, 2017.

Share capital of the Bank increased from `4,564.86 million as at March 31, 2017 to `4,605.93
million as at March 31, 2018. During the financial year ended March 31, 2018, the Bank has
issued `20,538,180 shares pursuant to the exercise of employee stock options (ESOPs).

Reserves and Surplus increased from `215,975.74 million as at March 31, 2017 to
`252,976.86 million as at March 31, 2018. Increase in Reserve and Surplus is primarily due
to accretion of profits and increase in Share Premium account.

Total deposits at March 31, 2018 constituted 72.8% of the funding (i.e., deposits and
borrowings). The Bank’s CD ratio stood at 101.4% as at March 31, 2018.

Interest Rate Risk for YES Bank

Interest Rate Risk in Banking Book (IRRBB) is the risk which impacts assets and liabilities of
Bank’s non-trading exposures which are contracted for steady income and statutory
obligations and are generally held till maturity. Interest rate risk is measured as the potential
volatility in the Bank’s core net interest income caused by changes in market interest rates.
Difference in pricing parameters of these Assets and Liabilities which may be due to different
tenor, asset type, liability type or other parameters exposes the Bank to possible loss.
Objective of the Bank is to limit IRRBB under Board approved risk limits.

IRRBB Governance Structure

The Bank has implemented a robust and comprehensive IRRBB Management architecture.

The Board of Directors of the Bank define the risk appetite, sets the strategy and approve
the ALM policy of the Bank. The Bank’s risk management processes are guided by the
Board approved well defined policies, independent risk oversight and periodic monitoring of
portfolio by Risk Monitoring Committee (RMC). The Risk Monitoring Committee (RMC) also
reviews various decisions taken by the Asset Liability Management Committee (ALCO) for
managing IRRBB.

Board approved ALM policy has defined the constitution of the ALCO which is responsible
for evaluating and institutionalizing appropriate systems and procedures for monitoring and
managing the IRRBB under the overall guidance of the Risk Monitoring Committee (RMC) of
the Bank. ALCO is headed by MD&CEO of the Bank and includes Key Top and Senior
Management executives of the Bank.

Independent Market Risk function of the Bank has dedicated team which measures and
monitors IRRBB Risk and highlights the exceptions, if any. Key responsibilities of this team
involve Policy / Limit review, Limit compliance monitoring, Modeling and Analytics, Basel
implementation for IRRBB.

Policies and Processes

IRRBB of the Bank is managed in accordance to the Board approved ALM and Market Risk
Policy. The Bank also has a Stress Testing Policy and Framework which enables Bank to
capture impact of various stress scenarios on Banking Book Portfolio. All these policies are
reviewed periodically to incorporate changes in economic, business and regulatory
environment.

IRRBB Identification, Measurement, Monitoring and Reporting

IRRBB architecture is the framework to measure, monitor and control the adverse impact of
interest rates on the Bank’s financial condition within tolerable limits. This impact is
calculated from following perspectives:

a) Earnings perspective: Indicates the impact on Bank’s Net Interest Income (NII) in the
short term.

b) Economic perspective: Indicates the impact on the net-worth of bank due to re-pricing of
assets, liabilities and off-balance sheet items.

The ALM & Market Risk Policies define the framework for managing IRRBB through
measures such as:

1. Interest Rate Sensitivity Report: Measures mismatches between rate sensitive

liabilities and rate sensitive assets (including off-balance sheet positions) in various
tenor buckets based on re-pricing or maturity, as applicable.
2. Duration Gap Analysis: Measures the mismatch in duration of assets & liabilities and
the resultant impact on market value of equity.
 3. Banking Book Value at Risk (VaR): Estimates the maximum possible loss, at a
predefined confidence level, on the market value of banking-book over a certain time
horizon under normal conditions.
4. Earnings at Risk (EaR): Estimates the impact on net interest income over one year
horizon due to 1% changes in interest rates.
5. Sensitivity Analysis: Evaluates the impact on both trading and banking book due to
changes in interest rates.
6. Stress Testing: Evaluates the impact on duration of capital of banking book under
various stress scenarios.

All the above risk metrics are measured on regular basis and reported to ALCO/RMC
periodically as guided by the ALM policy of the Bank.

` in Lakhs

Earnings Perspective (Impact on Net Interest Income)

If interest Rate were to goes down by 100

Currency
bps If interest Rate were to goes up by 100
bps
INR (43,925)
43,925

USD 6,126 (6,126)

` in Lakhs

Economic Value Perspective (Impact on Market Value of Equity)

If interest Rate were to goes down by 100

Currency
bps If interest Rate were to goes up by 100
bps

INR (4,200)
4,200
(13,332)
USD 13,332

Impact of NPAs:

YES Bank has seen no slippage during the March quarter from the restructured books on
account of the February circular and no impact on the outstanding restructured book (0.16
per cent of gross advances) as of March 2018. The potential impact where cases may get
referred to IBC on failure of a resolution plan is expected to be minimal.
YES Bank continued its stellar run on the core lending front, with net interest income
growing by a robust 31 per cent YoY. This came on the back of healthy margins and strong
traction in loans. Advances grew by 53.9 per cent YoY in the March quarter.

The central bank’s assessment of Yes Bank’s gross bad loans was Rs6,355.20 crore more
than what the lender had reported at the end of March’17.

Last year, Yes Bank reported a sharp rise in bad loans following the Reserve Bank of India’s
(RBI’s) supervisory assessment even though profitability was in line with expectations, which
lead to a surge in Provisions and Contingencies.

Provisions and contingencies surged to Rs447.06 crore from Rs161.67 crore a year ago. Its
provision coverage ratio fell to 43.3% in September ’17 from 60.0% a quarter ago. As on
December ’17 it was at 46.4%.

Out of the total divergence, 26.6% of loans were net payments while 47% of loans were
upgraded as standard on account of satisfactory conduct because there was no overdue
and 19.2% or Rs1,219.4 crore were classified as non-performing assets (NPAs).

Including the bad loan divergence impact, Yes Bank’s gross bad loans rose to Rs2,720.34
crore as the end of September ‘17, up from Rs916.68 crore a year ago and Rs1364.38 crore
a quarter ago. As a percentage of total loans, gross NPAs to 1.82% as the end of
September compared to 0.97% three months earlier

In the past six months, a higher proportion of such accounts being repaid or sold to ARCs,
has reduced the overall impact to a mere Rs 485 crore (classified as NPA). The bank had
reported gross NPAs of Rs 2,019 crore for 2016-17. But as assessed by the RBI, the gross
NPAs should have been Rs 8,373 crore for that year; this meant a nearly 5 percentage point
increase in its gross NPA ratio for 2016-17 than was reported.

But given that most of the accounts were already repaid, sold to ARC or upgraded as
standard on account of satisfactory account conduct, the overall impact of the divergence
was reduced to Rs 1,219 crore (classified as NPA).

YES Bank’s gross NPA ratio has fallen substantially from 1.7 per cent in the December
quarter to 1.28 per cent in the latest March quarter. Percentage of net NPA also eased to
0.93 per cent from the earlier 1.04 per cent. However, a few points need to be noted. YES
Bank had reported divergences of Rs 4,176 crore for 2015-16 and Rs 6,355 crore for 2016-
17. It will be important to watch the RBI’s annual risk-based supervision in this year.

Also, of the 41 per cent of divergence for 2016-17 or Rs 2,632 crore, has been upgraded by
the bank as standard on account of satisfactory account conduct. This will need monitoring
in the coming quarters.
YES Bank has seen minimal impact of the RBI’s February circular, which is a positive. The
RBI’s new framework for stressed assets essentially does away with all the old restructuring
schemes. In respect of accounts with aggregate exposure of Rs 2,000 crore and above,
lenders will have to draw up a resolution plan within 180 days from March 1, 2018 (or default
date as the case may be), failing which banks will have to refer the case for insolvency
under IBC.

The bank reported a sequential decline in gross as well as net non-performing assets

(NPAs). Quarterly slippages too have moderated further. Overall stress – including

restructuring and security receipts (SR) from sale to asset reconstruction companies have

fallen sequentially.

With the incremental quality of growth, the problem isn’t going to impact financial

performance meaningfully. However, to establish credibility of its numbers, a clean chit from

RBI is paramount. The management said that after a year of higher scrutiny from the

regulator the bank has a better understanding of RBI’s divergence and hence is not unduly

worried about the FY18 audit.

We do not see any imminent near-term uncertainty. The bank is well-capitalised (capital

adequacy of 18.4 percent), steadily capturing market share in advances, building a solid low-

cost liability franchise and guided to very strong growth in the next couple of years.

With systemic resolution of non-performing loans moving into high gear, we are staring at an
end of the bad asset cycle. The void created by state-run lenders is getting captured by
smart well-capitalised private banks. Yes Bank is likely to raise equity by FY19 end as it
sees exciting opportunities ahead. With the management’s confidence about complete
compliance with the regulator, at 2.7 times FY19e book, it could be the next private bank on
its way for a possible re-rating